On Monday, May 24th, 2021, the Bank of Korea (BOK) has issued a Request-for-Proposal (RFP) to select a technology service provider for their “Central Bank Digital Currency (CBDC) Simulation Study”, which is expected to run for ten months.
Bids submitted to the Bank of Korea will be evaluated on their technical merit, and negotiation of commercial terms. The BOK intends to implement a CBDC simulation environment using distributed ledger technology (DLT) in the cloud, and test the utility of CBDC and whether all tasks are operating as expected.
Just like the majority of central banks around the globe (as per BIS data), the BOK is conducting research in preparation for changes in the future environment, and to assess the institutional and technical requirements of the CBDC. To that extent, in March of this year, a “CBDC business process analysis” has been completed, and the “CBDC simulation study” project is the continuation of that effort.
The CBDC platform is to be based on open source software, so that it is not dependent on a specific IT company or private digital currency. While verifying the technical feasibility of the basic functions of a CBDC (issuance, distribution, redemption, etc.) and expansion (offline payment, digital artwork purchase, etc.), additional technical experiments will also be carried out.
The simulation environment for CBDCs utilizing distributed ledger technology will provide a two-tier operating model in which the Bank of Korea manufactures, issues, and redeems CBDCs, and the private sector distributes them.
During Phase 1, a distributed ledger CBDC simulation environment will be created, and the technical feasibility of basic functions (issue, distribution, redemption, etc.) verified.
During Phase 2, offline payment functionality (payment function for obstacles such as communication inability), and additional CBDC functions such as digital purchase, and the applicability of new technologies such as personal banking are envisioned.
Publish and participate in the CBDC simulation study, assuming a public-private partnership, and create an environment for performing CBDC simulations in the public cloud based on distributed ledger technology.
- Establishment of distributed ledger: establish a licensed distributed ledger that maintains the right to verify transactions and record the ledger jointly by administrative and authorized officials
- Experimental environment creation: virtually create CBDC-related IT systems of the central bank and participating institutions in the public cloud
Develop a CBDC system that supports core central banking business such as CBDC manufacturing, issuance, redemption, and electronic wallet management of participating organizations.
- Manufacturing: the central bank manufactures CBDCs in a secure computer environment with physically disconnected networks and stores them in hardware electronic wallets until publication
- Issuance: when a participating institution requests issuance of CBDC, the balance of the checking account is deducted and the CBDC is issued electronically by the institution
- Return: if the CBDC to be returned by the participating institution is transferred to the central bank’s CBDC electronic wallet, the balance of the checking account of the institution is adjusted
- Participating organization e-wallet business: issuing wholesale wallets
Implement basic functions for private-led CBDC distribution such as user electronic wallet management, exchange with deposits, remittance and payment.
- User electronic wallet management: issue retail electronic wallets (smartphone apps, etc.) and provide secret keys for electronic wallets
- Exchange with deposit: implement the function of exchanging bank deposits held by users for CBDC or converting CBDC to deposits
- Remittance and payment: provides a function that allows users to conduct purchases with CBDC or transfer them to another beneficiary
Expand the CBDC distribution business to include cross-border remittance, digital asset purchase, and offline payment, and devise measures to comply with related regulations.
- International remittance: implement cross-border remittance procedures where not specified in relation to other countries
- Purchasing digital assets: implement digital goods, etc. circulating of other digital assets with CBDC
- Offline payment: implement a procedure that allows use of CBDC for remittance and payment when disconnected from the Internet
- Regulatory compliance: provide functions such as CBDC management, storage of secret keys for use, and compliance with regulations when using CBDC (AML/CFT)
Confirmation of new CBDC application related to privacy technology, distributed ledger scalability technology, etc.
- Privacy technology: test Privacy Enhancing Technologies (PETs) to prevent access by unauthorized persons without affecting service performance
- Distributed ledger scalability: prove CBDC capabilities at scale for the different use cases, including digital assets
Checking the expandability of central banking business such as smart contract support and law enforcement support.
- Smart contract support: provides and supports a smart contract development environment and management functions for the distribution and execution of smart contracts through development language and compiler provision
- Law enforcement support: implement the CBDC allowing an investigative function of information disclosure to a law enforcement agency
Source: Bank of Korea
- access
- Account
- Additional
- All
- Allowing
- Application
- apps
- around
- asset
- Assets
- Bank
- Banking
- Banks
- bis
- business
- cases
- CBDC
- CBDCs
- Central Bank
- Central Banks
- checking
- Cloud
- commercial
- Communication
- company
- compliance
- contract
- contracts
- cross-border
- Currency
- data
- Development
- digital
- Digital Asset
- Digital Assets
- digital currency
- Distributed Ledger
- distributed ledger technology
- DLT
- Environment
- exchange
- expansion
- experiment
- function
- future
- ge
- GM
- goods
- GP
- GV
- Hardware
- hr
- HTTPS
- Including
- information
- Institution
- Institutional
- institutions
- issues
- IT
- keys
- korea
- language
- Law
- law enforcement
- Ledger
- Majority
- management
- manufacturing
- March
- medium
- model
- Monday
- months
- networks
- open
- open source
- operating
- Other
- Partnership
- payment
- Pets
- platform
- privacy
- private
- project
- public
- Public cloud
- purchase
- purchases
- regulations
- Remittance
- Requirements
- research
- retail
- Run
- Scalability
- Scale
- simulation
- smart
- smart contract
- Smart Contracts
- smartphone
- So
- Software
- storage
- stores
- Study
- submitted
- support
- Supports
- system
- Systems
- Technical
- Technologies
- Technology
- test
- Transactions
- users
- utility
- Wallet
- Wallets
- wholesale
- year